by Utsa Patnaik
But capital movement from the North to the South to produce the same goods as were being produced in the North and with the same technology, but at the lower Southern wages to meet the world market, which would have boosted the profitability of the production of such goods, never really occurred. Had it occurred, the distinction between developed and underdeveloped countries would have disappeared, since the massive labor reserves generated in the South owing to deindustrialization and surplus drain would have got absorbed until the relative sizes of the reserve army of labor, and the real wage rates, got more or less equalized in the two segments of the world. But this did not occur, and why it did not has been a big question before development economists till now.4
Even in the postwar dirigiste period when capital movements from the North to the South for setting up manufacturing industries in the latter occurred, that is, when capital movements did finally detach themselves from merely buttressing the colonial-style division of labor, this was more for tariff-jumping than for servicing the global market while taking advantage of the low third world wages. Since third world governments after decolonization were breaking away from the colonial division of labor and protecting domestic markets from imports, metropolitan capital could no longer access these markets while locating production in advanced countries. Thus it had to produce locally for accessing these markets. The market capital was accessing through such local production, however, was not the global market but only the local market.
The current globalization broke with this. There was a genuine shift of activities from the North to the South for meeting global demand while taking advantage of the lower Southern wages. China was the major beneficiary of this shift of manufacturing activities, and India was the major beneficiary of a shift of service sector activities.
Such a shift meant, first, a massive diffusion of capitalism from North to South. To be sure, there was capitalism developing within the dirigiste regimes that had come up in the third world after decolonization; but that capitalism had been hemmed in by the need of the regime to protect petty production, to impose controls of various kinds, and to preserve a generally egalitarian orientation that had been the legacy of the anti-colonial struggle. This hemming in could be justified by referring to the tendency of Northern capital to stay in the North, that is, the tendency of Northern capital to promote an international dichotomy between the developed and the underdeveloped countries. Now, however, full-blown capitalism finally got a chance to develop in the South. Export orientation, until then not considered an adequate strategy for development, since it could only refurbish the colonial division of labor without allowing third world countries to break out of it, now became the instrument for development, and metropolitan capital, till then considered a hindrance to third world development, now became a facilitator, welcomed with open arms.
Second, this new strategy meant an acceleration in GDP growth rates in the third world. True, this did not occur uniformly, but was mainly concentrated in East, Southeast, and South Asia; and true also that an acceleration in third world growth rates compared to the colonial past had already occurred in the dirigiste period. But that acceleration occurred not under the auspices of metropolitan capital, but in opposition to it, through protection, import-substituting industrialization with public investment playing a major role, and the stimulation of agricultural growth. It had occurred, in other words, not as part of an export-oriented strategy but in explicit contrast to the “openness” of the colonial period. The acceleration in the current period is of a different nature, based as it is on the “spontaneous” diffusion of activities from the North to the South as distinct from the enforced diffusion of such activities under dirigisme; the latter had involved activities being snatched away by the South from the North, which is what import-substitution entailed.
Third, both of the above traits entailed a flourishing urban middle class. The outsourcing of activities from North to South, the acceleration of growth as a consequence of it, the diffusion of capitalism to the South with the army of employees in the sphere of finance and commodity circulation it invariably creates, brought in its wake a flourishing urban middle class that constituted the chief social support base for globalization in the third world.
The importance of the urban middle class was underscored by Kalecki in his remarks on the “intermediate regimes” where he had described this class, together with the well-to-do peasants, as the backbone of the dirigiste regime.5 Though one may differ from Kalecki’s calling this class the ruling class, the social importance of the urban middle class in the third world cannot be underestimated. But just as it had supported the dirigiste regime, which it saw as opening up employment opportunities for itself, with dirigisme running into a dead end, it switched to supporting neoliberalism and the regime of globalization as it opened up new employment opportunities for this class.
While all this was one set of implications of globalization, there was another important set, which is less appreciated. Let us turn to it.
The Crisis of Traditional Petty Production
The dirigiste regime had in various ways supported, protected, and promoted petty production, especially peasant agriculture, even in countries where the Communists had not led the anti-colonial struggle and where consequently there had been no thoroughgoing land reforms. In these countries, landlord capitalism had grown alongside peasant capitalism and had even carried out a process of “internal” primitive accumulation of capital, with landlords ousting tenants to use land for capitalist farming, though big capital from outside was not generally involved. The regime of protection and promotion of peasant agriculture therefore had conferred uneven benefits on the peasantry, with the rich peasants and landlords being its main beneficiaries. Nonetheless, it had not been without benefit for the mass of petty producers.
The promotion of peasant agriculture had taken a variety of forms: tariff protection and quantitative trade restrictions to insulate the sector from world market price fluctuations, which, as is well known, are very wide in the case of primary commodities; provision of a range of subsidized inputs; research and development in state agencies for evolving better production practices; public investment in irrigation and other facilities of benefit to petty production; procurement of produce at assured prices by public agencies; dissemination of better practices through a wide public extension network developed for the purpose; and so on. One consequence of all this was an acceleration of agricultural growth that had the effect of preventing the phenomenon of increasing supply price from manifesting itself, and hence letting the “Golden Age of Capitalism” have a prolonged run.
With neoliberalism, however, all these measures of protection and promotion are progressively withdrawn and the agriculture sector (and more generally petty production) becomes open to encroachment by big capital, including metropolitan capital, from outside, and hence to the classical form of “primitive accumulation of capital.” Subsidized inputs are eliminated in the name of fiscal rectitude; public procurement at assured remunerative prices is eliminated as unwarranted interference in the functioning of the market, an elimination institutionalized under the WTO (though in the case of food crops the elimination of procurement is still not institutionalized as has happened for cash crops); public extension services are eliminated with peasants and petty producers now made to enter into a direct relationship with multinational agribusiness and multinational retail giants like Walmart; public investment in irrigation and other such overheads is wound down along with public investment in general; and quantitative trade restrictions are removed, with tariffs set inordinately low, lower even than the “tariff bounds” allowed by the WTO. This makes domestic prices move in sync with the fluctuating world prices in the case of cash crops at least, and catches the peasants in a debt trap, as in colonial times.
And on top of all this, the pressure for land acquisition to meet the various demands of the bourgeoisie and the urban middle class, such as housing, real esta
te, infrastructure (which often camouflages the demand for land for real estate purposes), and industrialization, leads to the dispossession of the peasants and the diversion of agricultural land for other uses.
Therefore, a twofold process of primitive accumulation of capital occurs under neoliberalism. There is primitive accumulation in a flow sense, where the average real incomes of the peasants and petty producers are squeezed, and there is primitive accumulation of capital in a stock sense, where they are simply deprived of their assets, either without any payment (this is true especially where the assets belong to the tribal population) or at throwaway prices. The point is that the unleashing of primitive accumulation of capital, or “accumulation through encroachment” (as one of us has called the conjoint processes of primitive accumulation at the expense of petty producers and similar accumulation at the expense of the state, through privatization of public assets), is an important feature of neoliberalism.6 The suicides of 300,000 peasants in India over the two and a half decades after 1990 is indicative of the virulence of the process.
But that is by no means all. When traditional petty producers are dispossessed, or when they get squeezed enough to want to move out of agriculture or other traditional occupations in search of work in urban areas, they do not find adequate work and swell the ranks of the labor reserves. Indeed, the distinction between an active army of labor and a reserve army as usually understood ceases to be applicable. Employment rationing takes a form where instead of some being fully employed and others fully unemployed, most are employed only part of the time, owing to the proliferation of casual employment, part-time employment, intermittent employment, “petty entrepreneurship” (a euphemism for disguised unemployment), and so on. Nonetheless, whatever the form of the labor reserves, displaced peasants and petty producers join the ranks of these reserves, because not enough jobs are created to absorb them together with the natural increase in the workforce, even in economies that are growing rapidly.
This is because under neoliberalism the restrictions on the pace of technological-cum-structural change are removed, which means that the rate of growth of labor productivity accelerates. Since the rate of growth of employment in the capitalist sector is the difference between the rate of growth of output and the ex ante rate of growth of labor productivity (that is, correcting for the effect of a rise in disguised unemployment), if this difference falls below the sum of the natural rate of growth of the workforce and the rate of growth of job-seekers from the petty production sector, then the relative size of the labor reserves must increase. This is exactly what is happening.
A pervasive belief, derived from the experience of Europe, is that while petty producers are dispossessed by the encroachment of capitalism, they get reabsorbed in the role of proletarians at a later date, so that their sufferings are only for a transitional period. That is, the process of primitive accumulation of capital brings only temporary suffering, except to a small segment of the dispossessed who remain trapped within the ranks of the reserve army of labor and experience prolonged suffering.
This belief, however, is a misconception. The reason why the dispossessed and pauperized petty producers in Europe did not just linger on as a vast unemployed and underemployed mass was not because they were absorbed as proletarians into the expanding capitalist sector, but because they emigrated in large numbers to the temperate regions of European settlement. Capitalism does not, in short, have an immanent tendency to absorb the bulk of the petty producers it displaces. And since for the people of third world countries such emigration possibilities do not exist, there is nothing to restrain the growth of unemployment and poverty as a consequence of primitive accumulation. Indeed, unemployment and poverty do increase secularly under the neoliberal dispensation in the third world.
The ex ante rate of growth of labor productivity under neoliberalism is high in the third world for at least three reasons. First, the desire to imitate metropolitan lifestyles on the part of the bourgeoisie and the urban middle class implies a shift in product mix and technology to bridge the gap between what exists in the third world and what is available in the metropolis; this is employment-displacing. Second, the desire to continuously alter this lifestyle in sync with the changes taking place in the metropolis implies a pace of technological-cum-structural change that is typically employment-displacing. And third, a shift in income distribution away from the workers, peasants, and petty producers toward the bourgeoisie and the urban middle class entails a change in the consumption basket; the change in the product mix in accordance with this change in the consumption basket is also employment-displacing.
For all these reasons, neoliberalism, though ushering in primitive accumulation of capital, does not create enough jobs, even in economies experiencing high rates of GDP growth, to absorb those displaced into the active army of labor. This, however, raises an important question: Is not creating enough jobs a necessary characteristic of the neoliberal regime, or is it only a happenstance, something that just happens to arise only because of certain parameter values? Our argument is that it is a necessary characteristic of the neoliberal economy. Let us see why.
Reading Market Signals in a Neoliberal Regime
Let us suppose that a producer in the petty production economy, in which we include tenants and laborers, was earning on average an amount x per period, and the process of primitive accumulation of capital in the flow sense reduced it to y (where y ˂ x). If such a person migrates to the capitalist sector and does get absorbed into the active army of labor at a per capita real income z that is higher than x, then there would be an increase in the average per capita real income of the working people as a whole compared to the original situation. This would raise the average per capita demand for food grains, which, if per capita food grains output is not rising, would cause excess demand in the food grains market, and hence inflation. Controlling such inflation would require cutting back on aggregate demand, and on employment and output, causing precisely a denouement of not enough jobs in the economy to absorb the total number of job-seekers, consisting of both displaced petty producers and the natural increase in the workforce that we have been talking about.
Put differently, the rate of growth of employment, ge in the capitalist sector, is given by the following:
where g is the rate of growth of output in the capitalist sector, gp is the rate of growth in labor productivity in this sector, gf the rate of growth of food grains output in the economy, and f(gf) the rate of growth of employment in the capitalist sector that any gf can sustain without giving rise to excess demand pressures in the food grains market. For the rate of growth of employment to absorb displaced producers from the pre-capitalist sector, not only should the rate of growth of labor demand, the first term within square brackets, exceed the natural rate of growth in the workforce, but so must the second term. For that to happen the rate of growth of food grain output must exceed the rate of population growth, so as to allow an increase in per capita real income compared to the original situation (since z > x).7
An objection might be raised on the grounds that a country does not have to meet its food grains requirement out of its own production; it can always import food grains. But the world as a whole cannot do so; nor can large economies, for their going to the international market will push up world food grain prices, posing a threat to the value of money. Hence, they will have to be more or less “self-sufficient” in food grains.
Raising per capita food grain output, however, requires land augmentation measures on the part of the state. Land augmentation must occur not just for providing food grains for the domestic market but also, above all, for meeting export demand from the metropolis, for which land has to be diverted from food grain production. Measures of land augmentation, though they played an important role under dirigisme, are eschewed under neoliberalism because of the change in the nature of the state, which we discussed above. Emphasis shifts instead toward keeping down domestic absorption of food grains (whi
ch are both exports and export-substitutes) through income deflation measures directed against the working people.
An additional factor works in the same direction of preventing land augmentation. The process of primitive accumulation of capital directed against peasant agriculture has the effect of reducing this sector’s, as well as the overall demand for food grains, even before any shift of displaced petty producers to towns has occurred. And this provides a market signal that leads to a curtailment of state efforts toward land augmentation. A rise in the cost of essential services, like healthcare, for example, on account of privatization, which is a powerful instrument for unleashing primitive accumulation, causes a decline in food grain demand, as agriculturists and others are forced to skimp on food intake to meet hospital bills for illnesses.
The market signals under a neoliberal regime, in other words, point always in a direction opposite to what social rationality would demand. And since under this regime, the state, which in the Keynesian perception stood as the promoter of social rationality, is reduced to act in accordance with the dictates of private rationality, we get perverse results, and one such result is state withdrawal from land augmentation even in countries afflicted by hunger.
In fact, in a neoliberal economy, an excess supply of food grains on account of a reduction in purchasing power in the hands of the working people causes a withdrawal of the state from land-augmentation measures and hence a lowering of the growth rate of food grain production. But an excess demand for food grains, such as would occur if the displaced petty producers get absorbed into the active army of labor, causes not the opposite, that is, a vigorous pursuit of land augmentation, but rather a lowering of aggregate demand through monetary stringency and fiscal austerity in order to ward off inflation by accentuating unemployment.
